I've co-written 7 books on investments and personal finance with Ken Fisher, CEO of Fisher Investments, 5 of which were national bestsellers. I also led the development of the Fisher Investments On series, a collection of educational guides published by Wiley covering the primary investment sectors—from energy to consumer staples to health care—with in-depth analysis on the economic, political, and sentiment forces influencing each.

Ron Paul, Greece and the Tin Standard

With Ron Paul still in the running for president, it’s become popular (again) to call for a return to the gold standard.

Gold standard fans’ chief argument tends to be the Fed (and all central banks) is an egregious government intrusion. They further posit we can achieve a utopic state of economic stability by “ending the Fed” and pegging currency globally to gold.

Except it takes a heck of a lot of intervention to get currencies to stay pegged to anything—whether it’s a chunk of decorative metal or not. A peg must be constantly jiggered. Why? Gold is pretty darn finite, wealth is not. Only so much gold exists above ground, and we only extract a bit more annually. Yet, while gold was sitting inert in bank vaults, Steve Jobs (RIP) created massive shareholder value and global wealth out of an idea he had then pursued in his garage. Bill Gates too. Chuck Schwab. Sam Walton. Sergey Brin and Larry Page. Mark Zuckerburg. Bethenny Frankel. They all created something out of nothing, packaged it, marketed it and sold it to people who believed that product had value.

In a world where wealth isn’t zero sum, tying money to a fixed hunk of anything requires a massive amount of intervention—by the government. To believe otherwise means adopting a mercantilist view of the world that doesn’t explain the existence of Skinnygirl margaritas and Angry Birds.

And what wretchedness has befallen us since we went off the gold standard in 1971? We had gross monetary missteps in the 1970s leading to hyperinflation, yes. A global phenomenon, not one unique to the US. But starting about 1982, inflation has steadily fallen. Interest rates are and have been very benign for years! Headline CPI was also much more volatile on the gold standard than off. US GDP was about was about $1 trillion in 1971 (in current dollars) and is now about $15 trillion. Global stocks have risen 2,946%. Incomes have risen steadily. Your phone (which cost you $300) can out-compute any 1971 warehouse-sized supercomputer (which cost a big firm many millions). Overall, we seem to have done ok.

Plus, the world before fiat currency wasn’t inherently more stable. Nor was the world pre-Fed particularly glorious. The very frequent bank panics of the 19th century and early 20th were often followed by 4- and 5- and 6-year Depressions.

Now, some argue gold is real and fiat money fake. Fair enough. Under the fiat system, currency has value only because we all agree it does. It’s psychological. It’s the Matrix! But it’s the same thing with gold. Gold doesn’t have inherent value. It’s worth what someone is eager to pay for it relative to someone’s eagerness to sell it. It’s worth more than tin because gold is more scarce and, thousands of years ago, we decided gold was prettier.

Mind you, I have no great love for the Fed. It’s plausible their autonomy (or lack thereof) is sometimes perilous. But there’s no such thing as a static set of rules politicians play by—ever. They change the rules when they want, and they’ll do that with gold too.

A final point: Greece wouldn’t be better off on a gold standard. Greece doesn’t suffer from a lack of credible currency. A credible currency is basically all Greece has going for it now. Greece suffers from decades of socialism making its economy utterly uncompetitive. The last thing Greece needs is Greek politicians managing a gold peg to the drachma. Zeus save us all.

This constitutes the views, opinions and commentary of the author as of February 2012 and should not be regarded as personal investment advice. No assurances are made the author will continue to hold these views, which may change at any time without notice. No assurances are made regarding the accuracy of any forecast made. Past performance is no guarantee of future results. Investing in stock markets involves the risk of loss.

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This article rehashes a bunch of old and worn out reasons for not moving to a modified gold standard. The author might want to read the article supporting such a move in the American Spectator. Anyway, limiting the discussion of monetary policy by focusing on the GS only, does your reputation, and your readers a disservice. A thorough discussion of Paul’s monetary policy must include fractional reserve banking, the transition away from the FED by overturning the competing currency laws and an overhaul of the regulatory system including, but not limited to Sarbanes Oxley and Dodd Frank. Ron Paul has never advocated for a cold turkey switch from fiat money or the FED, and you add nothing to the conversation by presenting a case against him building up these straw man arguments.

Your premise that gold is finite implies that the value of the gold should be defined at a set rate. You don’t have to do this. Rothbard wrote a nice explanation of this in “what has the govt done to our money”. Instead if gold is seen as a medium of exchange as well as a precious metal that also holds value you can imagine the gold coin or whatever increasing in value when true wealth is created. Meaning you don’t need more 20 bills your 1 oz gold coin would now be worth x amount more in purchasing power. It would fluctuate equally with the law of supply and demand.

More physical gold would allow for a slight devaluing assuming that for sake of example no change occurs at any point in the supply or demand of goods and services.

This is approximately what I came to say. Lara, you’re absolutely correct that wealth grows. But you’ve equated wealth to currency — this is just as arbitrary a connection as the rest, and not necessarily a healthy one. Instead of having more dollars, what’s wrong with your dollar buying more?

And yes, I know that there are good answers to that question involving the benefits of keeping money mobile. If I’m not mistaken, our current system’s primary purpose is to do this by making debt attractive. But constant inflation carries valid concerns as well, and I think it’s worth at least taking a good hard look at proposed alternatives.

And on that note, it’s important to look at what Paul has actually proposed, policy-wise: treat gold as currency instead of goods, which mainly means do not tax its exchange. Leave the dollar as it is, and allow natural market competition between the two.

I’m only an armchair economist, and perhaps this scenario has already been fully modeled and found lacking. But if so, nobody’s saying anything about it, and I wonder how many people even realize that’s what Paul is actually saying. “Return to a gold standard” is (typically, sigh) poor terminology on his part, and all the counterarguments I’ve seen assume he means simply pinning the dollar back to the metal, which is just as absurd as those counterarguments proclaim… and not at all what he suggests.

Three important things: If Greece had gold standard, no decade of socialist policies would be possible there in the first place, as it wouldn’t be possible to hide distorted checks and balances. They would see hard landing no longer than after two years of socialist madness!!! The global growth of gold production has been on average steady at the 3% p.a. since ancient times, thanks to new discoveries and new mining technologies, population growth. This corresponds with approximately same real annual growth of global GDP! Also, gold is only a key word, add silver and other precious metals to the equation, and you will get huge buffer to accommodate any growth of real economy you can dream of.. But what I read in one of the paragraphs on falling inflation, benign interest rates and the evolution of consumer electronic prices, would make me fire you on spot as an employer or client…and I wouldn’t even bother to tell you why. p.s. You must read more about bank panics…

Thanks for reading. I’m not sure your theory about gold production increasing at the rate of GDP growth holds true. For example, from 2000 to 2010, global GDP went from $31 trillion to $63 trillion. That’s quite a bit faster than a 3% annualized rate, and faster than inflation over the period. As an aside, GDP is an imperfect way to measure wealth—it captures product, not assets. It also doesn’t account for expanding value of firms, etc. As of year-end 2012, total market cap of global stocks was about $32 trillion. But the total value of all the gold ever mined is about $9 trillion (in other words, the total value of all known gold now is about 28% of the amount global GDP expanded in the recent 10-year period). Add silver to the mix, and you’re still tying money to the value of fairly volatile decorative metals with limited industrial use. But thanks for your comment and thanks for reading.

Firstly, you will first need to use historical prices to make any comparisons.

Secondly, you need to take into account that when we are talking about gold standard, we are thinking about the transactional currency, money-goods changing hands, or most importantly money needed as a back up for financial deposits and liabilities. You don’t need to have monetary resources to back up all goods either industrial or consumer ever produced. Most of them ( as opposed to gold) have already been consumed, many exist in the form of infrastructure, real estate, machines and equipment, real goods- and we don’t need gold nor silver to back them up.

We need gold as money only to stop the government from developing it’s ideas of ever-expanding redistribution of wealth and sinking into socialist utopia. With paper money- sky is the limit ( result: inflation and erosion of the value of savings – including retirement money). With gold, the only way the government can finance it’s ideas are taxes.

Talking about volatility: please check gold prices from 1833 onward. The price remained basically flat at $18.90 per oz until 1918 (end of WWI). And then after 1933 (executive 6102) until 1971. The most impact was related with government interventions or spending ( FED policy of 1920s, and then the Vietnam War). However neither Industrial Revolution, or Gilded Age had meaningful impact of precious metal prices. Back then, virtually all currency was minted in gold and silver or backed by those metals. And silver had much less industrial use then today. Please check also silver prices until 1964- when the US stopped minting silver coins. Flat. Lastly, Don’t mix financial, speculative transactions especially driven by the price of derivative instruments with factors affecting the price of metals related to real-life forces of supply and demand.

It’s nice to see an author responding to comments, I appreciate that. I would however, like to see you address the other arguments presented in the first three comments. The one you picked was a bit of low hanging fruit, and your response is given a very logical refutation by whatever5678. I look forward to seeing your reply.

What do you mean low hanging fruit? According to USDA.gov. global GDP in historical prices (2005 dollars!) went from $39.6T in 2000 to $50.7T in 2010. That’s 2.5% annual average growth…And we are not even talking about alternative measures of inflation that could have been used to calculate these numbers, say based on government own standards from pre 1980s ( over the years, the CPI factor was stripped from some important components, so today’s ‘inflation’ is less than half of the levels we could see if it was calculated based on 1980 standards- see John Williams’ shadow government statistics).

Argument with stock prices is also stretched as they do not not reflect the book or replacement value of companies but rather investors’ expectations related to generation of future income. And as such should not be linked to gold for comparison purposes, as it makes no sense, especially when we take into account the remarks given in my second response.

The comments from other users apply as they touch other areas of the ‘gold standard’. The value of gold shouldn’t be defined at a set rate ( although historically it stayed in equilibrium until distorted by the limitation of free trade ( FDR’s Executive order 6102 that was announced as a consequence of FED’s faulty low interest rate policy of 1920s). Nobody says that the introduction of ‘gold standard’ should be facilitated through switching all paper money into gold overnight, but rather allowing gold, silver to compete with existing paper currency and to anchor future monetary and spending decisions to real money sitting in the treasury or savings, not to the printing press or wonders of fractional reserve system.

The problem with fiat money is that it can be printed and handed to anyone. A gold standard prevents creating currency out of thin air, devaluing all the money already in circulation. You don’t have to go any further than this to realize how absurd the idea is.

Except the gold standard puts valuation decisions in the hands of, I don’t know, Congress. And in effect, they can (and did) devalue more than once. So in other words, you’re creating a rule the rulewriters enforce. What good does that do?

You obviously have no idea what your talking about, considering you described fiat money as the ‘gold standard.’ Having the currency locked to a standard means that the valuation will never be considered by Congress, only by the market.

Aye, you have just illuminated the strongest central point for Austrian economics and a value backed currency with your point: it’s ethical. You see, when Congress controls the coin, effects are directly experienced and representational democratic Republic participation is triggered as a result and as Constitutionally intended. Also, per the oath of office – yes, that one simple line to uphold and defend etc., but I digress… Currently, fiat paper collateral and “full faith” are based on human beings and their offspring, exploitable assets they stand upon – beyond the electronic mark on the currently un-auditable spreadsheet they appear to be. Marked in secret, by those who’ve never met or really even lived among you, having other lifestyles and priorities. As the fiat dollar devalues so do you and offspring, in wealth, in savings, in property, in liberty. Behold war, inflation (the hidden tax), gamed bubbles and the perpetual dependent and growing underclass, slavery really in favor of NDAA, Zuckerbergs and Gates and Rockerfellers and Fords and Rothschilds and… random cronies. They are the distracting promise that inspires via PR firm and foundational puff pieces with nice sounding titles on paper, but odds are better you’d be bitten by a pig in the ocean than achieving that, except psychologically it keeps you terribly productive to believe it. Yes, especially bad odds when that same wealth buys influence to bar competition in the market and declares itself legislator and king (unelected, unaccountable), while you are either a.) an emerging market, or b.) a pesky mob that breeds too much, whines and clogs their Interstate. No worries, in the meantime you’ll have Angry Birds and a dumbed down education to distract you from bulkhead 4 filling on the Titanic without warning, and upon which Jack can’t be King of the World for long. I could go on with the finer points in policy, the proof in timeline of history and myriad reasons in math, but this does it better and less passionately (it’s long, but shorter than the ton of books you appear not to read, respectfully): http://www.youtube.com/watch?v=HAzExlEsIKk&feature=youtube_gdata_player

So, why not audit the Fed on balance? Seems reasonable and like very non-Kool Aid drinking sense to me.

The trouble with what you’re discussing, roostex, is that it’s a theoretical construct that’s never existed anywhere. The reality of gold standards, where and when they’ve actually existed, is they exist at the whim of governments. In effect, the way this has worked has been: Congress pegs the dollar to a certain amount of gold (1/20th of an ounce, for example). But they can and did change that convertibility ratio. They messed with the idea of including silver. And a bunch of other stuff. My suggestion: Read Milton Friedman and Anna Schwartz’s Monetary History of the United States.

For the record, I’m a staunch Libertarian and I’m sympathetic to the notion less government is better, always and everywhere. Yet the trouble is the gold standard has never worked as a market-based solution in practice. I’m skeptical we can trust politicians to shun history and common practice and permit a gold standard to work without interfering. If you’re not, then I suggest you are disavowing centuries of historical precedent. Ceding power to government to value the dollar relative to gold and trusting they won’t tinker with it is a fool’s errand. What’s more, as Ms. Hoffmans writes in this article, there’s little evidence we have a big monetary problem requiring a drastic fix. Simply, the gold standard is a dubious solution in search of a problem, which likely carries some pretty huge unintended consequences with it.

Did you post this comment to the right article? If so, maybe you’re smarter than, because I’m confused. See my questions below.

You state: “Aye, you have just illuminated the strongest central point for Austrian economics and a value backed currency with your point: it’s ethical. You see, when Congress controls the coin, effects are directly experienced and representational democratic Republic participation is triggered as a result and as Constitutionally intended. Also, per the oath of office – yes, that one simple line to uphold and defend etc., but I digress”

I ask: So is democracy then, in your eyes, contingent on the Gold Standard? Gold existed as money in plenty of non-democratic societies, so it sure seems the historical evidence would say, “No.”

You state: “Currently, fiat paper collateral and “full faith” are based on human beings and their offspring, exploitable assets they stand upon – beyond the electronic mark on the currently un-auditable spreadsheet they appear to be. Marked in secret, by those who’ve never met or really even lived among you, having other lifestyles and priorities.”

I ask: I guess this is supposed to be anti-Fed. Please clarify. Because this is so unintelligible I have no idea what you mean. Especially when you continue in a disjointed manner to the next point.

You state: “As the fiat dollar devalues so do you and offspring, in wealth, in savings, in property, in liberty. Behold war, inflation (the hidden tax), gamed bubbles and the perpetual dependent and growing underclass, slavery really in favor of NDAA, Zuckerbergs and Gates and Rockerfellers and Fords and Rothschilds and… random cronies.”

I ask: Wait. Where is the evidence that the fiat dollar has resulted in more poverty? Don’t just make the claim—I. Want. Facts. Problem is, you aren’t going to be able to support that. Since the fiat dollar took over (whether you wish to mark that at the end of Bretton-Woods, invention of the Fed or 1933) the world is a) richer b) folks are less impoverished c) living standards are up d) even the poor—especially in America—have access to many wonderous things they didn’t before. Hey look, I figure you’re probably not a Rothschild heir. Yet you have the time, access, computer and internet to nonsensically comment on a blog post.

You state: “Behold war, inflation (the hidden tax), gamed bubbles and the perpetual dependent and growing underclass, slavery really in favor of NDAA, Zuckerbergs and Gates and Rockerfellers and Fords and Rothschilds and… random cronies.”

I ask: Are you now claiming that these things are related to a monetary standard or the existence of the Fed? Awfully difficult point to prove, especially considering that the majority of your evidence doesn’t support the point. Inflation, war, bubbles (see South Seas and French Mississippi bubbles—google them), poor people, e al, all existed during the gold standard. All. Including inflation. All. No exceptions. Second, of the folks you name, the Rockefellers, Fords and Rothschilds (who aren’t American by the way) made their fortunes under the gold standard. Not fiat money. Crony capitalism existed before fiat money too—google Credit Mobilier.

Moreover, I don’t think the question in this article is whether or not we should audit the Fed. That seems quite invented if you ask me. Look, I could go on, but frankly, I’d need a Mothra-speak Rosetta Stone to translate the unintelligible drivel in the second half of your post. Please, for the love of God, think through what you post before you do it.

“there’s little evidence we have a big monetary problem requiring a drastic fix” This is a lunacy!!! $16T of government liabilities means the US budget is on the verge of sustainability. We are now crossing the point of no return, which means that the accumulation of new interests will soon be faster than real possibilities to repay them. There is no budget cuts on the horizon as well. Add $100T++ of potentially unfunded Social Security liabilities and you may start smiling like Pelosi. Yet we wouldn’t be here if the fiat money system didn’t allow the governments to expand the deficits like drunk monkeys . With gold standard, it would be much harder to continue fraudulent Keynesian policies in the first place (and there is an obvious link between the deficits and foreign military policy as well).

“Yet the trouble is the gold standard has never worked” LOL! The price of gold had been stable for centuries. And two presidents not Congress changed it in the last century. Lesson learned. Why don’t we start auditing the Treasury, FED and allow for market competition between gold/silver and paper money?

BTW supporters of fiat currencies are called welfare statists, not libertarians…see Greenspan’s ‘Gold and Economic Freedom”.

You claim that, “Gold standard fans’ chief argument tends to be the Fed (and all central banks) is an egregious government intrusion. They further posit we can achieve a utopic state of economic stability by “ending the Fed” and pegging currency globally to gold…Except it takes a heck of a lot of intervention to get currencies to stay pegged to anything—whether it’s a chunk of decorative metal or not.”

Firstly, according to the circulation credit theory of the trade cycle, (otherwise known as the ‘Austrian Theory’ of the Business Cycle), the most harmful activity of the central bank is to exercise an exogenous influence on the height of the gross interest rate as it exists on the loan market. The Fed does this by expanding the volume of money and credit in the economy. This increased volume of credit is backed by the issuance of additional unbacked fiat money, otherwise called fiduciary media. Fiduciary media are money substitutes, in the form of bank notes or demand deposits, that enter circulation although they are not fully 100% backed by gold deposits, or claims to real gold deposits. From an initial state of equilibrium, this expansion of credit would have the effect of lowering the market interest rate beneath the “natural rate” (per Knut Wicksell). The “natural rate” would be that interest rate settled upon, in the loan market, which would equalize the demand for and the supply of savings. The immediate effect of this lowering of the interest rate, is to stimulate investment in “capital intensive industries” since, in these industries, a higher percentage of fixed capital is normally employed than in the consumer goods sector, or what Carl Menger would call the “lower stages” of production–those closest to the final consumer. For all that matter, the present value of fixed capital rises as the interest rate falls, which explains the rapid expansion in the heavy capital industries during the “boom” phase, i.e. construction, investment in durable machinery, etc. When the nominal income flowing to the original factors of production (land and labor) increases, as a result of the turnover of the new, larger quantity of money (originally introduced as fiduciary media, and now paid out as wages), the owners of these factors spend their income in the same general proportion between savings and investment, as they had been accustomed to spending before (i.e. their time-preferences have not changed). We have no reason to believe they should have. But this expenditure of the increased nominal income is the very mechanism which, by causing an increase in the price of final consumers goods, finally raises the interest rate back to a level consistent with the real supply of savings in the economy, and the now-greater demand for savings (to maintain the value of the investments in the capital goods industries and in fixed capital especially). Furthermore, because the inflation of the money supply causes asset prices to rise, this creates a systemic tendency to overstate the value of capital assets on firms’ accounting statements, which disguises the proceeding consumption of capital. Moreover, once the interest rate finally is allowed to rise, much of the existing debt that was supporting the expanded investment in the higher-stages of production (the capital goods industries), must now be liquidated as bad debt, because the requisite savings to make these “elongated” production processes remunerative is now patently lacking. Workers must be laid off, and a re-allocation of the factors of production across the economy, one that is consistent with the real level of the supply and demand for savings, must occur. Now, even in a purely-fiat money environment, wherein the money supply is supposed to be constant, the pernicious effects of an exogenous issuance of fiduciary media, and its subsequent entrance into the loan market before it enters circulation for consumers goods, will be the same. One of the virtues of the gold standard is that it creates a natural check on the issuance of fiduciary media; this check manifests itself in the outflow of gold reserves from a bank that is expanding its issue of money substitutes (bank notes or demand deposits). Once the “solvency” of the bank is questioned, i.e. when its gold reserves get low enough, it must cease expanding credit. And one simple observation, no government regulation is necessary to keep the currency tied to gold. You seem to assume that the “price level” must remain constant, but that is not so. The quantity of gold would increase slower than would the quantity of commodities, in an expanding economy. This is healthy and normal. The expansion of the quantity of commodities relative to the supply of money, would create deflation. Deflation is not evil. It happened during the latter part of the 19th century, and this was a time of incredible growth in the United States economy. Standards of living rise as prices go down, and the more productive processes resulting from sustainable investment cause their quantity to increase relative to their cost, and thus a drop in their market price.

Best piece I’ve seen on the gold standard to date. Carl Menger and Knut Wicksell! Finally, a piece that starts from first principles. And your paragraphs 5 and 7…..if that is all people would look at. For me that notion that of holding (price fixing) rates at or near zero, causes immense capital distortions, crowds out private investment because input prices are too high relative to income and consumption demand and suggests that I am indifferent between holding $100 today v. $100 5 years from now. It violates what we know about inter temporal choice and uncertainty! And all you have to do is look at COMEX futures to see that we are indeed on a gold standard anyways as investors seek currency hedges from wholesale debasement. There is no free lunch and first principles reminds us of this fact………always. Brilliant!

+1 – Very well written comment – I think its been the best response for an argument that seems to take the form: All value is perception. perception need not be real. Hence, value need not to be real – as long as its regulated.

But human progress – technological innovation and the resulting products aren’t created out of nothing – and it doesn’t just take raw material; knowledge accumulated over time is an essential ingredient too. If I believed that the android OS was just “abstract value generated out of nothingness” I’d call it vaporware not software.

I am no expert in economics and I can’t disagree much with Lara Hoffmans’s argument that the world after the gold standard hasn’t exactly been a total failure – but should we continue to refine a centralized govt-regulations driven system and eventually have some form of state-capitalism; or should we work towards separation of the state and economics?

I’m no economist but…how can you say we were on a Gold Standard b4 1971…what about fractional reserve banking…ever heard of that! Why did Nixon take us off the Gold Standard? Because we had about 200 times the Gold Reserve Notes outstanding than gold in reserve…he knew if people (and other Governments) actually started trying to turn in notes for gold…well can you say “Bank Run”…think Mr. Potter in ‘It’s a Wonderful Life”! Oh and another thing…the Founders made gold & silver legal tender because money should not be a ‘commodity’, money is a medium of exchange to facilitate trade of goods and services…read the story of Jesus and the Money Changers. The only act of violence in Jesus’ life was saved for the money changers;why? They passed laws to force their citizenry to exchange Roman coinage for Hebrew coinage and of course, then extracted a premium! Dishonest Money!

the final goal of any libertarian is not a gold coin standard, despite all its merits. when it is brought up, its to showcase the growth that occurs under hard money that fiat money advocates claim should be impossible.

the final goal is actually the denationalization of money. Ron Paul even tried to pass a law that would allow this when he introduced H.R. 1098, the Free Competition in Currency Act of 2011. this would have eliminated all transactional taxes on precious metals as well as eliminated the legal tender laws. the people would decide what money they would use, not government.

the simplest way to denationalize the US dollar would be to audit the US gold holdings at the NY Fed and Fort Knox. then peg the dollar to the gold at whatever amount that comes out to. then start exchanging the gold for dollars. eventually, all the dollars would be retired. banks would then be free to issue their own bank notes backed by whatever commodity they please. the free market would decide what form money will take.

I was looking at this idea regarding “Fed and Fort Knox. then peg the dollar to the gold at whatever amount that comes out to” and came up with this (which I would like to hear views).

Estimates as to the holdings of Gold for the Fed and F Knox come to around: 12,300 Tons or @ 434 million ounces (i understand this is optimistic).

At today’s prices @1750 that would be @760 billion dollars.

If, as I understand it, the quantity of dollars is rougly equal to the size of the US federal debt say 14 trillion, in order to retire the dollars the peg would have to value the ounce of gold at around 49,000 USD per ounce.

At that level no one would bother going to the window but it wouldn’t also realize the debasement of the currency?

As I understand it alternatives to this would have a dual track policy with gold backed new dollars and the retention of the fiat system at the same time.

The housing crisis has discredited the belief that central banks can implement or formulate optimal interest rate policies. The double whammy of massive sovereign and private debt has discredited central bank policies aimed to facilitate borrowing. The current generation understands that instead of being blessed by spending borrowed money, they will be cursed with servicing these massive debts across the coming decade(s) of stagnant growth. Please listen to Ron Paul explain the gold standard for just 5 minutes. http://www.youtube.com/watch?feature=player_detailpage&v=XxkGttK53P0#t=106s

Lara, I am sorry, but your arguments are lame. If you consider (government measured) CPI and add increase to money supply, perhaps you will find that global GDP has barely moved. Focus on “developed” economies – those with the propensity to print – and your GDP argument falls flat as the entire gain and then some is dwarfed by increased money supply. Gold mining easily outpaces population increases and the fact that the total value of gold is about $9T vs $32T in stocks – what does that have to do with anything? Perhaps under your interesting view of the world, it only means that gold should be about four times higher priced than it currently is – $6500/oz will solve your dilemma. Perhaps you would be more comfortable with copper, oil, or some other commodity as a grounding for currency. Fiat currencies only make the poor, poorer. Anyone with a fixed income, paying for more and more expensive goods will be the big loser. Governments get the poor vote with the promise of free stuff (paid for with monopoly money). It not only makes the poor dependent on the government, but the increased price of goods outpaces the government’s stated CPI. The national average gallon of gasoline was $1.73 the day Obama took office and is twice that today (not just 3%/yr), while the U.S. has more oil than ever before. Print more dollars and each is valued less – you better find something you are comfortable tying your currency to – is your jewelry made out of tin or do you value gold?

I think JFK had a good idea with silver. Much more plentiful than gold. But the biggest issue isn’t the currency itself it is the Federal Reserve printing money for the government at interest, and anyone else it wants, unchecked. We need to eliminate central banking and have money issued by the US government and no one else. Also there needs to be a larger requirement for raising the debt ceiling so that the government cannot spend us into oblivion without a certain majority. That way no one can stand around and point fingers and say its the democrats or the republicans that are at fault. Along with a balanced budget amendment would help keep things in check. Without central banking we could not have the warfare and welfare state like we do. Also maybe a requirement for any new legislation passed must have a way to pay for it. If we were actually being taxed for all of these programs and wars they would have been dead in the water a long time ago.

Why would it be nessasary that the supply of gold increase relative to GDP wouldn’t its value increase relative to the goods it was chasing benefiting the holders of the currency with appreciation instead inflation why do we assume the fed who’s board is comprised of members from major banking interest don’t skew they’re deciisions to benefit the financial sector by creating ever more avenues for inflating either directly or through fractional reserve banking by the use of bogus credit default swaps and other shenanigans to thwart the restrictions on inflation. Inflation is theft and those that control the mechanisms of monetary expansion and even how it’s measured are not representing those who give them they’re incredible authority over our society by the monopoly of the greenback .

Lara, thank you for attempting an objective approach to the gold standard thesis but you’re missing some key points. First, because commodity backed currencies (in this case gold) are basically tied to a finite resource that can not be counterfeited, a deflationary economic environment is created. This is for two reasons: in a competitive marketplace improvements in technology and productivity drive prices down for goods and services; and also, as population and wealth increase the demand for money increases therefore driving up the quantity demand (of a scarce resource) and therefore the strength of the currency.

Convention says deflation is bad because it will discourage consumption/encourage savings and hurt incomes. This is not true and/or a mischaracterization. The first fallacy here is that consumption is hurt by falling prices because consumers delay purchases; this may be true for some products that have no natural demand (cash for clunkers anyone?), but quickly consider the flat screen TV market- prices fall every year but consumers do not indefinitely put off their TV purchase. People want the utility of the good! Would you not eat or drive simply because it will be marginally cheaper tomorrow? In fact, the case could easily be made overall consumption increased in the TV market because falling prices made the product available to a larger base of consumers. Secondly, when did savings become a bad thing in an economy? Sustainable consumption requires a dollar saved for every dollar consumed. Credit and lending is simply a mechanism to efficient allocate scarce resources to productive sources. And because nobody makes money just for the mere sake of making money, a consumption first policy is simply trading consumption in the future with compounded effect for consumption today with compounded debt. Lastly in the “deflation is bad” myth is that incomes of workers would fall. This is intellectually dishonest, as the value in money does not come from its nominal value but rather from its purchasing power. You don’t care how many zeros are in your bank account, only how many cars/houses/food/entertainment/healthcare you can buy with it. Therefore it is more than possible that salaries could fall yet cost of living could fall faster, especially considering the difficulty in lowering employee wages, which means greater individual prosperity. Clearly deflation is not the villan bankers and Keynesian economist make it out to be, a little research will easily establish that the US’s most prosperous time in term of real increases in standard of living was post civil war with the reinstatement of a commodity (gold) backed currency from the fiat currency used durring the war.

Detractors of the gold standard and proponents of central economic planning, i.e. central banks (which I don’t understand why people don’t see as straight out of the communist handbook) will point to this same period as a time of economic uncertainty and financial crisis. This is also a malicious pseudo-truth used to justify the establishment of the Federal Reserve in 1913. The truth is, yes corporate wealth was erratic during this time as companies had to keep pace with rapid evolutions in technology and maintain competitiveness. This meant cashflows fell rather than rose every year at large companies unless they could continuously innovate (which economically awards the most competitive) which in turn threatened speculative equity investors and limited potential profits of major US firms (Standard Oil’s fields were getting less valuable rather than more valuable every year). So true, this period was not great for corporate profits but rather for the people who worked at these companies, ie the middle class. They profited greatly and saw their standard of living increase faster than any other accurately recorded time in American history. Furthermore, the financial losses of a less competitive firm stemmed from the new profits of several more competitive firms. The equivalent bourgeois of the time (think Robber Barron-esk) saw this constantly changing landscape as a social challenge to maintaining their hegemony/empire (which it was as financial success was based on your talent/competitiveness rather than your last name or access to lots of cheap credit) so they conspired to establish the Federal Reserve inorder to promote “price stability” as to maintain profits for the corporation but not the society. While this may sound like revisionist history it isn’t, the history of the Federal Reserve’s formation is no secret; financiers representing 1/4th of the world’s wealth met on Jekyll Island in 1910, in secret, to outline the FED reserve system (seriously just google it) But here I ask, what good is a corporation’s profits but to serve the ends of its stakeholders? Under the current system only shareholders are directly rewarded profits, and because few people are shareholders few people have benefited from inflation’s effect on nominal profits. This is why income disparity has constantly grown since the US exited the gold standard and inflation became a serious threat.

There is so much on this topic you could write a textbook but I hope this fills in some of the gaps in your understanding. Took me a long time to totally understand the thesis but once you flesh it all out it starts to make perfect sense… and you begin to wonder how you could ever have bought into the absurdity of fiat currency that depends on corrupt politicians to act responsibly and maintain its fiscal integrity. Their track record? The dollar has devalued by 98% since 1913.

I find the tone of this article quite childish. And the arguments incoherent. Starting off with saying that gold standard ‘fans’ believe they can achieve a ‘utopic state of economic stability’. Whoever said that? Only in the authors imagination. By no means do gold advocates claim that – far from it. But the fact that the author posits it so – shows a little childishness on her part.

Secondly trying to associate Apple, Facebook and Microsoft as if they have anything to do with coming off the gold standard – is completely laughable!

The author seems to have written an article based on feelings and sentiment rather than actual facts and research.

It’s like they compared ‘stuff we had in the seventies’, to ‘stuff we have now’ – and arrived at the conclusion that now is much better – So that vindicates coming off the gold standard!?

Lastly, believing yourself to be qualified enough to make blanket statements such as ‘…the world before fiat currency wasn’t inherently more stable…’ – just loses any credibility you might have had with any informed audience.

Tying innovation and creativity is a canard. I’m not 100% with Ron Paul about returning to the gold standard, though I am voting for him. Fiat money in not the cause of the world’s financial problems. The crux of the problem is that private banks (international banking cartel), not governments truly govern. Politicians just think they’re in control because they have a “bottomless” credit account to draw from, then strap the people with the debt payments which only gives the banking cartel more profit, power, and influence over each country, destroying national sovereignty.

The “federal” reserve act of 1913 needs to go, along with the national income tax which only serves to give wealthy and greedy megalomanics more influence over our county, which turning our people into powerless debt slaves.

We are running only 40 years on pure fiat money standard, and some serious cracks in this system are already being seen and felt. Chinese Yuan Dynasty used paper money and inflated its currency between 1260 to 1508 by 1000% and converted its money to new currency units several times as well. The Ming Dynasty ended the use of paper money in 1455 and China stayed with gold standard for the next four centuries. Fiat money is the cause of world financial problems. There wouldn’t be cartel banking governance if money and credit would truly be linked to precious metals and real savings.

U.S citizen Alan Greenspans in his book “Gold and Economic Freedom” advocated a return to the gold standard. I believe Ron Paul is like JFK with executive order 11110 Look like the FED is running the country and NOT, THE JUDICIAL, THE LEGISLATIVE, AND THE EXECUTIVE. Does anybody knows the FEIN (Federal Employer Identification Number) of the Federal Reserve? By the way, if this is the land of liberty, how come an immigrant has no right to work? They have to work as slaves of other identity. Now don’t rush on me, if a person goes directly to a U.S consulate and they ask for a permit of work, they immediately reject the application. Well, then there’s illegal immigration, but if you claim there’s no work in U.S I bet many employers from many states are looking for people to work in the FIELD and Construction, but not many are willing to suffer low wage and hardwork. I challenge any U.S poltician to work for the minimun wage and show any U.S citizen they can live decent with a minimun wage, and on top of that they must work on the agriculture field or construction field. I don’t think any U.S politician will last 40 hours of work. I can go and give a nice speech and last as much as they do (politicians). Better yet, I can go and work for the FED and take Ben’s chair and tell the workers to keep printing money, I have the US Bonds, hahaha.

I’m an immigrant, if I had the power to vote, I would vote for Ron Paul! I want to go back to my country with where the US dollar is at pair and has the same purchasing power, and it will only be possible if Ron Paul is president. Otherwise, this country will be in bankruptcy with the rest of the world. Look at the MONEY INVENTED CALLED “EURO” Did the presidents of the european countries gathered together to invent a new currency? Prove it!!

If we did go on a gold standard—whether a pure gold standard or some form of hybrid—someone still must establish the rules for how much money our gold reserves represent. And then, they must establish and enforce rules for how much that currency base can grow, when and how. That “someone” will be congress or some congressionally appointed, non-elected body. The Fed, but under a different name. If you don’t like the Fed, my guess is you really won’t like the Gold Standard Council (brought to you by the same people who brought you Sarbanes-Oxley and Dodd-Frank).

Then, too, this works only if the entire world plays by the same rules. I’m having a hard time envisioning why China (and most emerging markets with their fast-growing economies) much want a gold standard. Or that we could trust them to accurately report their gold reserves. Or that Germany or France want to do what we tell them to do, nevermind Russia or most of the Middle East, or or or.

And why gold? Why not oil. I bet we could win the Middle East, Canada, Mexico and Venezuela over if we pegged currency to oil. Why not diamonds? They’re worth more than gold. How about tin? It’s less scarce. Seashells. Beads. Chickens. Discuss.

“Someone still must establish the rules for how much money our gold reserves represent” I am not sure if that would be necessary if free competition is allowed between gold backed money and the dollar (as Ron Paul suggest), but if so, let’s try with qualified majority of Congress, perhaps based on division of government gold reserves by the volume of money in circulation or to be minted or printed, and link it with some IFRS, GAAP rules to audit the Treasury going forward (similarly as public companies audit their balance sheets annually all over the world). Those countries which try to run away from new standard, would be punished with limited confidence of investors and increased country risk premiums.

And why gold? Because gold (and silver) worked well for thousands of years. Because gold is way easier and cheaper to standardize and test than diamonds, it is much more dispersed and it’s mining is less controlled/concentrated/monopolized than diamonds, can not be artificially manufactured (as diamonds). Can not be burned as oil (or diamonds), easily consumed, or produced as food. It’s availability is limited as opposed to other widespread metals, seashells, beads- (which in fact belong to the same category as paper when it comes to currency creation) . But I think copper, tin or even oil could work pretty good as substitutes for gold, if there wasn’t a problem with the costs of storage, transport, and physical exchange. Besides, the production and supply of base metals (crude oil) is currently limited by real demand and could be doubled, tripled fast if requested (quite similarly as fiat money, but in definitely more costlier way), however the same trick wouldn’t be possible with gold, as thousands, possibly millions have already tried, and failed…

First, thank you for informing me of the rules to be a libertarian. I was unaware a group whose basic principles seemingly hinge on individualism and freedom (of thought, expression, etc) were so clearly laid down.

Second, many of the comments here seem confused regarding what a gold standard is and what it isn’t. A gold standard is form of monetary valuation. It is not a rule that says government can’t spend. It is not a rule barring crony capitalism. It is not a rule that forbids the expansion or growth of the welfare state. It has nothing to do with debt. To me, this is where much of the support for a gold standard comes from—a mistaken view that this somehow actually limits government. As alluded to in my earlier comments, it does no such thing—instead, granting government the power to determine the actual valuation of the currency (and, in many cases, determining the valuation of gold simultaneously).

What’s more, the rantings in your piece regarding “$16T of government liabilities means the US budget is on the verge of sustainability” are off base. The costs to service our debt are at levels akin to the early 1990s. The debt-to-GDP ratio is far lower than it was during WWII. (Technically, we were on the gold standard then. So there.) I am by no means arguing for more misallocated and ridiculous government spending, but I am suggesting the “crisis” so many discuss regarding US debt is, in fact, a pure fantasy. We won’t have a real conversation about US debt, government spending and the problems created by misallocated capital until this fear is destroyed.

The gold standard has never worked. Every time it’s been tried, it’s been abandoned. And no, gold hasn’t been stable for centuries (see the last 30 years, please)—except when it’s pegged to the dollar at a value the government sets. Is that what you want?